The FCA has set out its expectations for lenders making early car finance settlement offers while legal challenges to the compensation scheme continue. Our latest bite-size examines what firms need to know, including settlement requirements, customer communications and the importance of helping consumers understand the implications of accepting an offer.
On 3 November 2026, the Financial Conduct Authority (FCA) published its minimum expectations for lenders making car finance settlement offers while legal challenges to its compensation scheme continue. The regulator supports early settlements provided customers receive no less than the maximum redress available to them under the scheme being challenged. Firms planning offers are expected to notify the FCA and must share its settlement factsheet with customers.
The scheme remains partially suspended. The challenges are now scheduled for hearing between 16 February and 3 March 2027, after the Tribunal extended the hearing dates on 26 October. Firms must continue preparing and progressing complaints as far as possible, but need not calculate or pay compensation under the scheme until the legal process concludes. Voluntary settlements are distinct from compulsory scheme payments.
Why it matters
The announcement expressly connects settlement communications with informed decision-making. The FCA states: “Lenders will need to be clear with people about what accepting any offer means.” Consumers can wait and have no obligation to accept.
The FCA’s research found that 89% of customers who had complained or were considering complaining wanted the choice of an offer now, and 86% would be comfortable making the decision. For 77%, earlier compensation would make a great deal or fair amount of difference to their financial situation. These findings concern 590 respondents within a survey of 1,000 motor finance customers, not all borrowers. Demand for earlier payment, and comfort with the decision, do not establish understanding of the consequences.
What firms need to know
Acceptance is full and final. Customers retain the payment if the litigation means they would otherwise receive less or nothing. They cannot claim additional compensation for the same complaint if the outcome would have entitled them to more. The complaint will ordinarily be treated as withdrawn, and acceptance could affect the customer’s ability to bring court proceedings and their outcome.
Neither the offer nor, at this stage, the underlying complaint can be referred to the Financial Ombudsman Service. The FCA’s rationale is that customers can reject an offer and leave their claim to be dealt with under the scheme. A customer who declines and waits can have the Ombudsman review the outcome of their complaint later, under a compensation scheme or the normal complaints process if no scheme applies.
Offer letters should give customers at least one month to respond. They should make clear that the FCA has not reviewed the terms of any individual offer and should not imply that it has approved them. The factsheet makes the same point: the FCA has not assessed the individual offer or the customer’s circumstances. Regulatory support is not individual approval.
The letter appendix should identify the relevant arrangement and the basis of liability, and explain how redress was calculated, including any set-off, caps, compensatory interest and income tax deduction. It should also demonstrate that the offer is no less than the maximum redress available under CONRED 5/6.4.
The announcement introduces no standalone comprehension test, although letters should signpost further information and encourage customers to seek clarification or advice if they do not understand the offer. Separately, where applicable, PRIN 2A.5.3R requires communications to support understanding and properly informed decisions. PRIN 2A.5.8R requires tailoring, including consideration of vulnerability. PRIN 2A.5.10R requires testing and monitoring where appropriate.
What firms should do now
Compliance officers should distinguish express settlement expectations from existing Consumer Duty requirements. Immediate controls should cover FCA notification, the compensation benchmark and its demonstration in the letter, factsheet provision, the one-month response period, the no-approval statement and clear explanations of finality, alternatives and Ombudsman access.
Compliance reviews should assess whether letters, scripts and digital journeys explain the trade-off consistently. Where the Duty applies, firms should consider appropriate testing and monitoring rather than treating factsheet delivery as evidence of understanding. PRIN 2A.5.12G identifies decision importance, vulnerability and potential harm from misunderstanding as relevant factors. These are existing requirements and guidance, not a newly prescribed settlement-testing regime.
Key Takeaways
Check the benchmark. Confirm that each offer is no less than the maximum redress available under the scheme methodology, and demonstrate the calculation in the letter.
Explain finality. Make clear that acceptance prevents a later top-up, while customers keep the payment if the legal outcome reduces entitlement. The complaint will ordinarily be treated as withdrawn.
Present genuine alternatives. Explain the option to wait and allow at least one month to respond. Be accurate on Ombudsman access: no referral of the offer or underlying complaint now, but later review if the customer waits. Avoid suggesting acceptance is compulsory.
Assess understanding. Provide the mandatory factsheet, state that the FCA has not reviewed the individual offer and consider applicable Consumer Duty testing and monitoring requirements. Distribution alone does not demonstrate comprehension.
Track uncertainty. Continue preparation and complaint progression during suspension. Keep communications aligned with developments because litigation timing and final compensation outcomes remain uncertain.
At Auxillias, we have a highly experienced team supporting clients across all aspects of motor finance commission matters, from legal and regulatory advice to redress planning, complaints handling, customer communications and compliance support.
If you'd like to discuss how we can help, email AuxilliasInsights@auxillias.com or request a free initial virtual consultation.
